Featured Product

    ISDA Proposes Collaboration Between Derivatives and SFT Markets

    October 05, 2020

    ISDA is proposing ways to achieve greater collaboration between derivatives and securities financing transaction, or SFT, markets. The proposal has been set out in a recently published whitepaper, which highlights the significant efficiencies that could be achieved by closer coordination and alignment between the two markets, resulting in reduced costs for market participants. The proposal sets out that institutions operating in both derivatives and securities financing transaction markets could benefit from greater harmonization in documentation as well as from improvements in post-trade processing and automation.

    ISDA has highlighted several areas where greater standardization and collaboration could be achieved, including:

    • Developing common legal definitions across the derivatives and  securities financing transaction markets, documenting derivatives and  securities financing transactions under a common master agreement and procuring one set of legal opinions in jurisdictions around the world on close-out netting for both derivatives and securities financing transactions
    • Implementing consistent solutions across the derivatives and  securities financing transaction markets that enable market participants to more seamlessly adapt and migrate when key changes (such as the interbank offered rate transition) occur
    • Developing common standards and taxonomies to facilitate automation and interoperability across derivatives and  securities financing transaction markets and to enable a consistent trade record for confirmation and reporting on a broad scale

    The paper highlights that ISDA has developed a Common Domain Model (CDM), which serves as a blueprint for how derivatives are traded and managed across the trade lifecycle. The CDM has the potential to cover other financial markets, including  securities financing transactions. By providing a single data representation of trades across the derivatives and  securities financing transaction markets, CDM could provide significant cost savings and address the market need for an efficient solution to this issue. With a single documentation platform and CDM for the repo, securities lending, and derivatives markets, there will be a single entry point for other service providers. This allows pre-trade service providers and post-trade providers (such as analytics, optimization, and compression platforms as well as regulatory reporting services) to integrate their systems with just one standard, increasing the scalability of the solutions they can provide. 

    The paper also sets out a proposal for how the ISDA Master Agreement could be expanded to cover  securities financing transactions as well as derivatives. The paper proposes a set of securities financing transaction provisions to be added to the schedule of the ISDA Master Agreement, along with publication of a securities financing transaction definitional booklet. The paper also considers certain key issues that would need to be addressed in such an exercise and includes a granular analysis of key terms from the different documents to identify specific potential synergies as well as those key product terms where specificity would need to be maintained.

    The EU Capital Requirements Directive and Regulation contain various provisions related to financial instruments, including derivatives. Securities financing transactions are not financial instruments as such, although where they relate to securities, those securities would be financial instruments. There are also provisions related to repurchase transactions, securities, or commodity lending or borrowing transactions and other capital-market-driven transactions other than derivatives. The change of documentation would not affect the characterization and treatment of securities financing transactions for the purposes of this legislation. Similarly, the change of documentation would not affect the characterization and treatment of securities financing transactions under the various US capital regimes (which differ based on the type of US regulated entity involved).

     

    Related Links

    Keywords: International, Banking, Securities, Derivatives, Securities Financing Transactions, Common Domain Model, Interest Rate Benchmark, IBOR Transition, Reporting ISDA

    Featured Experts
    Related Articles
    News

    BIS Paper Outlines Vision for Future Financial System

    In a recent paper, the General Manager of Bank for International Settlements (BIS) and the Indian entrepreneur (Infosys co-founder) Nandan Nilekani have laid out a vision for the Finternet, which is proposed to be a network of multiple financial ecosystems, much like the internet.

    April 29, 2024 WebPage Regulatory News
    News

    NGFS Outlines Options for Supervisory Review of Transition Plans

    The Network for Greening the Financial System (NGFS) recently published three reports on the use of transition plans to boost sustainable finance and manage climate-related financial risks.

    April 29, 2024 WebPage Regulatory News
    News

    BCBS Issues Discussion Paper on Climate Scenario Analysis

    The Basel Committee on Banking Supervision (BCBS) issued a discussion paper on the use of climate scenario analysis to strengthen the management and supervision of climate-related financial risks.

    April 29, 2024 WebPage Regulatory News
    News

    OSFI Issues Phase2 Consultation on Climate Scenario Exercise for Banks

    The Office of the Superintendent of Financial Institutions (OSFI) recently announced a consultation on the second phase of the Standardized Climate Scenario Exercise (SCSE) for banks and other financial institutions it regulates in Canada.

    April 25, 2024 WebPage Regulatory News
    News

    CFIT to Chair Open Finance Taskforce Announced by UK Government

    The UK government announced the formation of an industry-led Open Finance Taskforce, chaired by the Center for Finance, Innovation, and Technology (CFIT).

    April 25, 2024 WebPage Regulatory News
    News

    BIS and Central Banks Experiment with GenAI to Assess Climate Risks

    A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe

    March 20, 2024 WebPage Regulatory News
    News

    Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures

    Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.

    March 18, 2024 WebPage Regulatory News
    News

    Singapore to Mandate Climate Disclosures from FY2025

    Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies

    March 18, 2024 WebPage Regulatory News
    News

    SEC Finalizes Climate-Related Disclosures Rule

    The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.

    March 07, 2024 WebPage Regulatory News
    News

    EBA Proposes Standards Related to Standardized Credit Risk Approach

    The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU

    March 05, 2024 WebPage Regulatory News
    RESULTS 1 - 10 OF 8962